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A Global Macroeconomic Risk Model for Value, Momentum, and Other Asset Classes

Published online by Cambridge University Press:  13 November 2020

Ilan Cooper Open the ORCID record for Ilan Cooper [Opens in a new window] ,
Andreea Mitrache  and
Richard Priestley
Ilan Cooper*
Affiliation:
BI Norwegian Business School Department of Finance
Andreea Mitrache
Affiliation:
JPMorgan, Budapestandreea.mitrache@gmail.com
Richard Priestley
Affiliation:
BI Norwegian Business School Department of Financerichard.priestley@bi.no
*
ilan.cooper@bi.no (corresponding author)
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Abstract

Value and momentum returns and combinations of them across both countries and asset classes are explained by their loadings on global macroeconomic risk factors. These loadings describe why value and momentum have positive return premia, although being negatively correlated. The global macroeconomic risk factors also perform well in capturing the returns on other characteristic-based portfolios. The findings identify a global macroeconomic source of the common variation in returns across countries and asset classes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 1 - 30
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank Jesper Rangvid, Richard Roll, and Nick Roussanov (2017 Jacobs Levy Conference discussants); Zhongzhi Song (2017 Financial Intermediation Research Society (FIRS) discussant); David Stolin, Michela Verardo, and Yaqiong Chelsea Yao (2016 China International Conference in Finance (CICF) discussants); Anmar Al Wakil (2017 MSF discussant); and participants at the 2016 CICF, the 2017 FIRS, the 2017 MSF, the 2017 Jacobs Levy Center Conference, and the New Economic School (NES) 25th Anniversary Conference for helpful comments and suggestions.

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